andersonville study

8/2/2019 Andersonville Study

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Modified February 2005


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THE ANDERSONVILLE STUDY OF RETAIL ECONOMICS OCTOBER 2004

Civic Economics 1

HIGHLIGHTS OF THE ANDERSONVILLE STUDY

www.AndersonvilleStudy.com

In a study comparing the economic impact of ten Andersonvillebusinesses and their chain competitors, it was found that:

Locally-owned businesses generate a substantial LocalPremium in enhanced economic impact.

For every $100 in consumer spending with a local firm,$68 remains in the Chicago economy.

For every $100 in consumer spending with a chain firm,$43 remains in the Chicago economy.

For every square foot occupied by a local firm, localeconomic impact is $179.

For every square foot occupied by a chain firm, localeconomic impact is $105.

Consumers surveyed on the streets of Andersonvillestrongly prefer the neighborhood over agglomerations ofcommon chain stores.

Over 70% prefer to patronize locally-owned businesses. Over 80% prefer traditional urban business districts. Over 10% of respondents reside outside the City of

Chicago.

The study points to clear policy implications.

Local merchants generate substantially greater economicimpact than chain firms.

Replacement of local businesses with chains will reducethe overall vigor of the local economy.

Changes in consumer spending habits can generatesubstantial local economic impact.

Great care must be taken to ensure that public policydecisions do not inadvertently disadvantage locally ownedbusinesses. Indeed, it may be in the best interests ofcommunities to institute policies that directly protect them.


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Civic Economics 2

EXECUTIVE SUMMARY

Abstract:

The Andersonville Development Corporation, with the support of TheAndersonville Chamber of Commerce and funding by AndersonvilleSpecial Service Area #22, retained Civic Economics to evaluate theeconomic impact of the neighborhoods locally-owned businesses andcompare that with the impact of competitive chains. With the activeparticipation of ten local firms, economic impacts were determined foreach. Economic impacts for ten chains were then determined. Toaccount for differences in revenue and size, those impacts were adjustedto two measures: impact per $100 revenue and impact per square foot.Because the locally-owned businesses and national chains were found togenerate comparable revenue per square foot of retail space, the localfirms were found to generate 70 percent greater local economic impactthan chains per square foot, or 58 percent by revenue.

Andersonville is a neighborhoodon Chicagos north side. Itsprimary thoroughfare, ClarkStreet, bisects the neighborhoodand serves as its commercialcenter. The commercial district isdistinctive for its quaint facadesand greenery, its history as aSwedish settlement, its currentdiversity, and the notable dearthof chain outlets among itscountless shops, restaurants,and service providers. However,national chains have expressedinterest in the community asdisposable income continues toincrease. These national chainsare able to pay above present market value on their leases, which has begundriving commercial rental rates up and longstanding local businesses out.

The Andersonville Development Corporation (ADC), the Andersonville Chamberof Commerce (ACC) and Andersonville Special Service Area provide economicand market development services to the area. Civic Economics is an economicanalysis and strategic planning consultancy with offices in Austin and,coincidentally, Andersonville.

Civic Economics previously conducted a widely cited study in Austin, Texas,assessing the economic impact of a publicly subsidized Borders Books & Musicstore seeking to locate across the street from locally-owned Book People andWaterloo Records. In those unique circumstances, it was demonstrated that the

Photo Andersonville Chamber of Commerce

ANDERSONVILLE


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Civic Economics 3

local merchants generated three times as much local economic activity as thechain store, adjusted for revenue. That study, known as the Liveable City Study,has been replicated in two very different circumstances with similar findings:Maines Mid-Coast region and Toledo, Ohio.

ADC retained Civic Economics to build upon that research, studying the role ofAndersonvilles diverse business community in the Chicago economy. ADCrecruited ten local businesses to participate fully in the study, opening their booksto the firm to facilitate a complete economic impact analysis of each. CivicEconomics then prepared economic impact analyses of ten chain competitorsselected in consultation with ADC and with consideration given to dataavailability. We adjusted those impacts to account for variations in revenue andsquare footage, and, to further explore the meaning of the data, businesses werecategorized into three segments: restaurants, retailers, and service providers.

ADC also conducted a Customer Preference Survey of 512 randomly selected

shoppers within the neighborhood during the month of May 2004. While this wasan unscientific survey it provided interesting background information about wherepatrons are drawn from and why they choose to shop in Andersonville. Justunder 40 percent of survey respondents came from outside the two main zipcodes for the Andersonville area, and ten percent were from outside the City ofChicago. These visitors bring money into the district and into the city.

When asked to express a preference on the type of business shoppers patronize,over 70 percent preferred locally-owned businesses while less than three percentpreferred chain businesses. Additionally, an overwhelming 80 percent ofrespondents identified Andersonvilles traditional neighborhood district, withlocally-owned independent businesses, as their preferred shopping environment.

These results lend support to the preexisting belief in the neighborhood that theunique businesses and layout of Andersonville are a draw, attracting people fromboth inside and outside the region. Visitors are consciously choosing this type ofcommercial district over others.


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Civic Economics 4

Aggregate Economic Impacts

Using the City of Chicago as the relevant jurisdiction, economic impacts werecalculated and aggregated (all local businesses and all chain businesses).Including direct, indirect, and induced effects, we found that the ten local firms

generate a combined $6.7 million in annual economic impact compared to $8.8million for the ten chains.

In this case, directeffects reflect the first round of local spending, such as wagesand benefits, profits to local owners, local procurement, and charitablecontributions. Indirect and induced effects reflect the continuing circulation ofthat first round of spending by businesses and individuals respectively.

Local economic impacts for businesses that serve a local market are primarilymade up of four components: labor, profit, procurement, and charity.

Looking only at the chart above, the simplest policy conclusion jumps to the fore:these ten chain businesses create greater economic impact than the ten localfirms. However, the following pages demonstrate that this simple assumption

neglects to account for two essential variables: the revenue and square footageof each business. These variables, as we shall see, thoroughly erase theapparent economic impact advantage of chain businesses.

LOCAL IMPACT COMPONENTS (millions)

SOURCES: Interviews with all local businesses, Annual Reports for all chain businesses,Minnesota Implan Group, Urban Land Institute Dollars and Cents of Shopping Centers2004, CivicEconomics.

3.92

5.19

1.39

1.921.34

1.72

$0

$5

$10

Local Chain

Induced

IndirectDirect

$8.8

$6.7


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Civic Economics 5

Adjusted Economic Impacts

Among the firms studied, chain businesses took in an average of over twice therevenue and occupied twice the square footage of the locals. Therefore, it wasnecessary to adjust raw economic impact values to account for these substantial

differences. When those adjustments are made, the apparent economic impactbenefit of the chain businesses is completely erased. The fact that locally-ownedbusinesses ($263 revenue per square foot) and national chains ($243 revenueper square foot) generated comparable sales per square foot of retail spacenegates any size advantage the chains have over their locally-ownedcompetitors.

For every $100 in consumer spending with chain firms, $43 will remain in thelocal economy; if that same spending occurs with a locally-owned firm, that value

jumps by 58 percent, to $68. Similarly, for every square foot of space occupiedby a chain, the local economic impact is $105; if a local firm occupies that samespace, impact jumps by 70 percent, to $179.

This Local Premium represents the quantifiable advantage to the city provided bylocally-owned businesses. Whether measured as a share of revenue or bysquare footage, local firms generate a substantial Local Premium over their chaincompetitors. That means more money circulating in the local economy, whichmay mean more home improvement, more in the collection plate, and more intaxable transactions to fund city services.

LOCAL IMPACTPER $100 REVENUE

SOURCES: Interviews with all local businesses, AnnualReports for all chain businesses, Minnesota ImplanGroup, Urban Land Institute Dollars and Cents ofShopping Centers2004, Civic Economics.

68

43

$0

$20

$40

$60

$80

$100

Local Chain

LocalPremium:58%

LOCAL IMPACTPER SQUARE FOOT


179

105

$0

$50

$100

$150

$200

Local Chain

LocalPremium:70%


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Civic Economics 6

Across the board, locally-owned businesses substantially exceed their chaincompetitors in all four components. For example, local firms spent an average of28 percent of revenue on labor compared to 23 percent for chains. Additionally,eight of the ten local firms are owned by Chicago residents, so profits largelyremain in the city. Local firms procure local goods and services at more than

twice the rate of chains. Finally, locally-owned firms in the study contribute moreto local charities and fundraisers than do their national counterparts and,although this provides the smallest local advantage of the four categories, thisdifference is important to the community.


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Civic Economics 7

Economic Impacts by Sector

In order to gain a fuller understanding of these results, businesses were furthercategorized as restaurants, retailers, and service providers. This further analysisreveals that the Local Premium ranges from 144 percent per square foot among

service providers to 63 percent among retailers and 22 percent per square footamong restaurants.

LOCAL IMPACT PER $100 REVENUE BY SECTOR

SOURCES: Interviews with all local businesses, Annual Reports for all chain businesses, Minnesota Implan Group, UrbanLand Institute Dollars and Cents of Shopping Centers2004, Civic Economics.

6876

44

76

43

60

27

40

$0

$20

$40

$60

$80

$100

All Firms Restaurants Retail Services

Local Chain

Local Premium:58%

Local Premium:27%

Local Premium:

63%Local Premium:

90%

179

303

124

100105

249

5941

$0

$50

$100

$150

$200

$250

$300

$350


Local Chain

Local Premium:70%

Local Premium:

22%

Local Premium:

110%Local Premium:

144%

LOCAL IMPACT PER SQUARE FOOT BY SECTOR



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Civic Economics 8

These differences are largely accounted for by one factor: labor costs.Restaurants, for example, are heavily dependent on employed labor. Locally-owned restaurants tend to employ more workers, have them work slightly longerhours, and pay them slightly more than their chain competitors. Local serviceproviders, at the other end, are heavily dependent on the labors of the owner

while their chain competitors rely more on employees, resulting in the mostsubstantial Local Premium.

Policy Implications

A careful reading of the data demonstrates that locally-owned businessesprovide substantial economic benefits to the city, benefits that are in danger ofbeing measurably diluted by increasing chain competition. While fair competitionand consumer choice are the touchstones of urban economics, great care mustbe taken to ensure that public policy decisions do not inadvertently disadvantagelocal firms. Indeed, it may well be in the best interests of communities to institute

policies that protect them.

Andersonville is a model for prosperous communities nationwide. There,Chicagoans offer a wide array of products and services, keep local dollars in thelocal economy, and contribute to Chicagos privileged place among Americancities. But Andersonville and the dozens of neighborhoods like it are particularlythreatened by the proliferation of chain businesses.

Future public policies in Chicago must seek to protect and promote theAndersonville model rather than facilitate its demise. Equally important is thematter of consumer choice. With each purchase, consumers put into play theirhard earned dollars; the consumers decision to patronize a local firm versus achain competitor ripples through the economy with dramatic results.


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Civic Economics 9

COMPLETE REPORT

The complete analysis is presented in four sections as follows:

INTRODUCTION AND BACKGROUND putting the Andersonville Study in

context, describing previous related studies and the origins of this one METHODOLOGY outlining the analytical process followed by Civic

Economics FINDINGS presenting the results of this analysis through four steps:

o Components of Local Economic Impacto Aggregate Economic Impactso Adjusted Economic Impactso Economic Impacts by Sector

POLICY IMPLICATIONS describing some practical applications of thesefindings for consideration by policy makers and consumers


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Civic Economics 10

INTRODUCTION AND BACKGROUND

Civic Economics, the Andersonville Development Corporation, the AndersonvilleChamber of Commerce, and Andersonville Special Service District NumberTwenty-Two collaborated on this study, designed to evaluate the regional

economic role played by independent businesses in this dynamic district onChicagos North Side.

In short, the study was designed to calculate the economic impact ofAndersonvilles locally-owned businesses and assess the economic impact ofincreasing chain store activity in the region. Ten Andersonville businessesagreed to participate fully in the study, opening their books to analysts at CivicEconomics in order to allow a thorough understanding of their revenue andexpenses. In addition, the study included a survey of consumers visiting theAndersonville area.

Battles between national chains and local merchants have been raging for sometime now. The argument for supporting local merchants has often been anemotional one, pleading for support in the name of intangible qualities associatedwith buying local: superior customer service, involvement in community affairs,wider range of quality goods, and personal attention. While these factors areimportant, the economic benefits that chains are able to claim, such asemployment numbers and sales tax collections, may overwhelm even wellintentioned and informed public officials who believe chain stores benefit thecommunity more than do locally-owned stores.

The partners at Civic Economics contended that the emotional argument putforth by local merchants should be supplemented by solid economic research.We suspected that while the large national chains generated more revenue fromsales, much of this money left the region in which it was generated. CivicEconomics found a perfect test case in Austin, Texas to explore the theory.

Background - The Liveable City Study and beyond

The Andersonville Study is designed to build on a series ofresearch that began in Austin, Texas in 2002. There CivicEconomics was hired by the Austin Independent BusinessAlliance and nonprofit Liveable City to design and execute alimited study evaluating the likely economic impact of a bigbox outlet proposed for a corner already occupied by largelocal merchants selling identical goods.

Austin has faced a range of contentious choices in recent years. The communityspirit has long been defined by the citys quirky personality, but explosive growthhas dramatically changed the city. Contemporary notions of prosperity havethreatened to transform Austin into another Houston or Dallas, with live music


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Civic Economics 11

and technological prowess reduced to economic development and tourismmarketing hooks.

However, these forces have met with strong local resistance. One recentbattleground was the intersection of Sixth & Lamar, at the western edge of the

historic urban core. There, in the shadow of beloved local merchantsBookPeople and Waterloo Records, a developer proposed to erect a strip centeranchored by Borders Books & Music. Moreover, the citys complex smart growthordinance resulted in development incentives exceeding $2 Million. Oppositionto the development was emotional and shrill, providing little basis on whichprudent city officials might step in and change the outcome.

The Civic Economics partners saw an opportunity to inject facts into the dialogue,providing public officials with a legal basis on which to act. We formulated amethodology and presented the idea to the local merchants involved. Themerchants signed on, and additional funding and public relations support for the

study were provided by Liveable City and the Austin Independent BusinessAlliance.

While the study began with no preconceived notions, the findings wereremarkable:

For every $100 in consumer spending at Borders, the total localeconomic impact is only $13. The same amount spent with BookPeopleor Waterloo Records yields more than three times the local economicimpact, or $45.

Building on that analysis, Civic Economics formulated three essential findings:

Local merchants generate substantially greater economic impact thanchain retailers.

Development of urban sites with directly competitive chain merchants willreduce the overall vigor of the local economy.

Modest changes in consumer spending habits can generate substantiallocal economic impact.

Since the release of the Liveable City Study1, the work has been replicated in twocommunities. The Institute for Local Self-Reliance found nearly identical results

in a study of retail activity in Mid-Coast Maine

2

, and the University of Toledo

3

Urban Affairs Center found comparable results in a study of bookstores in LucasCounty, Ohio. However, given the narrow focus of these studies, there has beenno clear and accepted consensus regarding the applicability of these findings inother settings. Indeed, Civic Economics has repeatedly cautioned against

1 Available for download at http://www.civiceconomics.com/Andersonville/Lamar_Retail_Analysis.pdf2 Available for download at http://www.newrules.org/retail/midcoaststudy.pdf3 Available for download at http://uac.utoledo.edu/Publications/Toledo-Merchant-Study-04.pdf


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Civic Economics 12

assuming the Liveable City findings were universal, given the unique attributes ofthe local merchants studied.

Civic Economics In Andersonville

The Andersonville neighborhood on Chicagos north side presents an idealextension of the work begun in Austin. With its cohesive neighborhoodorganizations, dedicated and involved residents, and dense, thriving commercialdistrict, Andersonville was an able and enthusiastic test subject.

Andersonville has become one of Chicagos most popular neighborhoods. Fromits beginnings as a Swedish enclave through today, its Clark Street core ofunique, locally-owned businesses has been one of the main drivers of thecommunitys success. However, its appeal is attracting increased interest fromnumerous chain stores looking to locate an outlet on Clark Street. Both residentsand business owners are deeply concerned that the possible change in the

neighborhoods character would be detrimental to both the quality of life and thecommercial viability of the community.

The Andersonville Development Corporation and the Andersonville Chamber ofCommerce were in search of empirical data to show whether a strategy ofencouraging locally-owned, independent businesses was prudent andeconomically sound. The Development Corporation retained Civic Economics tostudy the impact of existing local businesses and compare that to prospectivenational competitors. This study was designed to provide more definitive answersrequired for the formulation of new urban development policies and thepreservation of Andersonvilles economic vitality.


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Civic Economics 13

METHODOLOGY

The Andersonville Study of Retail Economics was designed to measure theeconomic impact of twenty businesses, ten locally-owned firms operating inAndersonville and ten chain firms loosely identified as competitors or prospective

competitors.

The first step in this process was to pick the actual companies from Andersonvillethat would comprise our local components. After consultation among theAndersonville Development Corporation, Andersonville Chamber of Commerce,and Civic Economics, it was decided that the companies should meet thefollowing criteria:

Located within the physical boundaries of the Development Corporationand Chamber of Commerce service areas

Representative of the variety of retail, restaurant, and service firms that

serve the neighborhood Drawn from throughout Andersonvilles mile-long Clark Street commercial

corridor Representative of the cultural and ethnic diversity of the community

Additionally, as there are several locally-owned franchises that serve thecommunity, we decided that at least one locally-owned franchise should beincluded to ascertain where these firms fit in the local-chain dynamic.

Once these ten local firms were chosen, chain competitors were identified. Thenational competitors were chosen using the following guidelines:

Offering the same general product line or service as a local firm Not located in Andersonville Publicly held, to ensure the availability of data Not headquartered in Chicago

The following chart shows the local and chain businesses ultimately selected forparticipation in the study:

ANDERSONVILLE STUDY FIRMS BY SECTOR

Restaurant Retail Service

AndiesM Henry

Star GazeSwedish Bakery

Local

Chain

ApplebeesDennys

Olive GardenPanera

Chicago AquariumWhite Hen

Women & Children

PetcoConvenience Store

Borders

Joel HallToujoursVisionary

CinemarkSupercuts

Pearle


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Civic Economics 14

Three notes are appropriate regarding the chain businesses selected for study.Many of these corporations operate a mix of corporate-owned and franchisedoutlets; in those cases, the analysis covers only corporate outlets. For Cinemark,calculations assume a four-screen facility. Due to difficulties separatingcorporate and franchised convenience stores, we formulated data for a

hypothetically average, corporate-owned convenience store of 2,000 square feet.

After the local and national matches were made, the interview process began togather the data needed from the local companies. These interviews wereconducted face to face with owners or representatives of the local businesses.Worksheets were designed to elicit total revenue and expenditure patterns foreach firm, including supplier locations and employee residence.

These owners provided data, which we treated as confidential, addressing thefour primary areas where these firms expend funds locally: labor, profit,procurement, and charity.

As this process moved along, comparable data for the national competitors werederived from a variety of reliable sources. Because all the firms chosen arepublicly held, a wide variety of data were readily available. The majority of thedata were drawn from Annual Reports to stockholders and 10K filings with theSecurities and Exchange Commission. Where gaps needed to be filled, thefollowing additional sources were consulted:

Urban Land Institutes Dollars and Cents of Shopping Centers: 2004

U.S. Economic Census Hoovers Online

After all data were collected, the numbers were inserted into a model developedby Civic Economics using IMPLAN multipliers for the City of Chicago. The modelallows us to calculate the economic impact on the city for each business, andshow it in various ways, including as a percent of revenue and per square foot ofretail space. The results illustrate the differential impact of local firms and theirnational rivals. Because land use decisions and economic development policyare largely municipal functions, the City of Chicago was selected as the relevant

jurisdiction.

The Andersonville Development Corporation also conducted a Patron Preference

Survey of 512 randomly selected shoppers within the neighborhood during themonth of May 2004. While this survey was not scientifically formulated, itprovided detailed background information about where patrons are coming fromand why they choose to shop in Andersonville.


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Civic Economics 15

Economic Impact Analysis

Civic Economics builds its economic impact analyses around tools and dataprovided by the Minnesota Implan Group, publishers of IMPLAN software anddatasets. The following provides a brief description of the analysis process.

For this analysis the study aims to measure the amount of money spent on retailgoods and services that remain in the local economy after consumer purchases.Therefore, Civic Economics began impact calculations not with the revenues ofthe firms studied but with their expenditures. Conventional application ofmultipliers assumes that comparable retailers have comparable impacts. Themodified model utilized here follows the revenues of each business one stepfurther to identify the actual local expenditures of that firm. This allows us todetermine true economic impacts.

In this study, total economic impact is the sum of three effects: direct, indirect,and induced. The box below describes our modified methodology for usingmultipliers to isolate only dollars kept local.

In this case, directeffects reflect the first round of local spending, such as wagesand benefits, profits to local owners, local procurement, and charitablecontributions. Indirect and induced effects reflect the continuing circulation ofthat first round of spending by businesses and individuals respectively.

Our analysis started with the direct effect spending, which was gathered frominterviews with local companies and careful study of chain store corporate filings.Using this as the base, indirect and induced effects are calculated by way ofmultipliers, which capture the size of these effects as a ratio of total change ineconomic activity relative to direct effects. Multipliers provided by IMPLAN

estimate indirect and induced effects and adjust for predictable leakage from thejurisdiction.

ECONOMIC IMPACT METHODOLOGY

Direct Indirect Induced Total+ + =

Identifiedspending ofthe business

beingstudied

Estimated recirculation of thedirect effect spending

Calculated using a multiplierspecific to the jurisdiction and

sector

Aggregateimpact of the

businessbeing

studied


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Civic Economics 16

FINDINGS

The Andersonville Study of Retail Economics has produced a treasure trove ofdata. Civic Economics interviewed individual business owners to determinerevenue and spending patterns for all ten local firms, and estimated the same

data for chain businesses. To distill this massive dataset to an accessible form,we have organized it as follows:

Aggregate Findings, including all local and all chain businesses

Impact per $100 of Revenue, allowing a fair comparison based onconsumer spending at each business

Impact per Square Foot, allowing a fair comparison based on the spaceoccupied by each business

Sector Findings, grouping businesses as Restaurant, Retail, or Service

Table 1 provides a summary of key data for the analysis:

In the pages that follow, we will review this data in aggregate (all local and allchain businesses), and by sector. We cannot, however, reveal detailed data forany participating business.

LOCAL IMPACT SUMMARY

Table 1

SOURCES: Interviews with all local businesses, Annual Reports for all chain businesses, Minnesota Implan Group,Urban Land Institute Dollars and Cents of Shopping Centers2004, Civic Economics.

Local Businesses Restaurants Retail Services TotalStar Gaze, Andies,

Swedish Bakery,

M Henry

Women & Children,

Chicago Aquarium,

White Hen

Visionary, Joel Hall,

Toujours

Total Revenue 5,406,000$ 2,310,500$ 2,050,000$ 9,766,500$

Retail Square Footage 13500 8100 15500 37100Revenue per Square Foot (psf) 400$ 285$ 132$ 263$

Total Local Impact 4,090,402$ 1,005,570$ 1,555,887$ 6,651,859$

Local Impact per $1 Revenue 0.76 0.44 0.76 0.68

Local Impact per Square Foot 303$ 124$ 100$ 179$

Chain Businesses Restaurants Retail Services TotalApplebees, Olive

Garden, Panera,

Denny's

Borders, Petco,

Average C-Store

Pearle, Cinemark,

Supercuts

Total Revenue 9,306,994$ 8,962,896$ 2,212,222$ 20,482,112$

Retail Square Footage 22330 40500 21500 84330Revenue per Square Foot (psf) 417$ 221$ 103$ 243$

Total Local Impact 5,550,439$ 2,392,347$ 886,856$ 8,829,641$Local Impact per $1 Revenue 0.60 0.27 0.40 0.43

Local Impact per Square Foot 249$ 59$ 41$ 105$


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Civic Economics 17

Components of Local Economic Impact

The lions share of the local economic impact of retail and service businesses isattributable to four factors: labor, profit, procurement, and charity.

Spending on local labor comprises a larger share of operating costs for a locally-owned establishment than for an outlet of a national chain. While the latter areable to consolidate administrative functions such as bookkeeping and marketingat national headquarters, independents must carry out those functions in-houseor outsource within the community. Additionally, economies of scale andcarefully engineered store layouts may allow national chains to employ feweronsite staff than do locally based firms. In this study the local firms spent, onaverage, 29 percent of total revenue on labor costs while the national chainsspent 23 percent of revenue on labor.

Secondly, a larger portion of profits earned by local ownership will remain in the

local economy. Purchases of goods, services, and meals at chain outletsgenerate profits for the corporation, which then either reinvests in globaloperations or distributes a portion of profits to shareholders. In either case, chainstores profits circulating in the local economy are nominal.

Third, locally-owned businesses procure a wider array of goods and services inthe local marketplace. These include goods for resale, business supplies, andprofessional services, among others. For the local and chain firms studied here,local procurement was roughly twice as high for local businesses (6.0 percent oftotal revenue) as their chain competitors (2.9 percent of total revenue).

A smaller yet significant share of the local advantage is charitable giving. Theowners and employees of local firms generally live in and around their businesslocations and are more likely to give back to their own backyard. National firmsmay be more likely to donate to charities near to corporate headquarters or otherlarge corporate facilities.


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Civic Economics 18

Aggregate Economic Impacts

Local impacts were first determined without making adjustments for differencesin revenue and square footage. In general, the chain businesses studied drawhigher total revenue and occupy larger spaces, though sales per square foot are

comparable.

Chart 1 shows the totallocal economic impact ofour ten local businessesand of their ten chaincompetitors. While thelocal firms generate aneconomic impact of $6.7Million on revenue of $9.8Million, the chains would

generate a local economicimpact of $8.8 Million onrevenue of $20.5 Million.

Chart 2 provides moredetail, revealing thecomponents of the impactcalculation: direct, indirect,and induced.

In this case, directeffectsreflect the first round oflocal spending, such aswages and benefits.Indirect and inducedeffects reflect thecontinuing circulation ofthat first round of spendingby both businesses andindividuals. For moredetail on economic impactanalysis and the meaningof these components,please review theMethodology section ofthis document on page 10.

In each chart, the simplestpolicy conclusion jumps tothe fore: these ten chain

REVENUE AND LOCAL IMPACT (millions)

Chart 1

SOURCES: Interviews with all local businesses, Annual Reports for all chain businesses,Minnesota Implan Group, Urban Land Institute Dollars and Cents of Shopping Centers2004, CivicEconomics.

9.8

6.7

20.5

8.8

$0

$10

$20

$30

Total Revenue Local Impact

Local Chain

LOCAL IMPACT COMPONENTS (millions)

SOURCES: Interviews with all local businesses, Annual Reports for all chain bu sinesses,Minnesota Implan Group, Urban Land Institute Dollars and Cents of Shopping Centers2004, CivicEconomics.

Chart 2

3.925.19

1.39

1.921.34

1.72

$0

$5

$10

Local Chain

Induced

Indirect

Direct

$8.8

$6.7


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Civic Economics 19

businesses create greater economic impact than the ten local firms. However,the following pages demonstrate that this simple assumption neglects to accountfor two essential variables: the revenue and square footage of each business.These variables, as we shall see, thoroughly erase the apparent economicimpact advantage of chain businesses.

Adjusted Economic Impacts

In order to evaluate the true economic impact of any business, it must be placedin the context of the local economy, in this case the City of Chicago. Twoimportant considerations must be added into the calculus: revenue and storesize. For each factor, we have calculated a Local Premium, reflecting theadditional economic impact of local firms expressed as a percentage increaseover the impact of competitor chain firms.

By Revenue: Chart 3 illustrates the economic impact of local and chain

businesses adjusted for total revenue, revealing that $100 in consumer spendingwith a mix of local businesses generates $68 in local economic impact. Bycontrast, the same $100 spent with competitor chains generates only $43 in localeconomic impact. The Local Premium in economic impact is a striking 58percent relative to chains.

Consumer spending in large retail markets isrelatively inelastic; that is, the presence of anygiven business will not change total consumerspending over an extended period of time. Forexample, it may well be that the arrival of anew Olive Garden in a location such asAndersonville will briefly generate greaterrestaurant sales in the area, but it cannot beassumed that it will increase overall restaurantsales in the city. The reason for this is simple:household discretionary spending is a functionof household income, not a function ofchoices. Because sales tax revenue is afunction of retail sales activity, the chain storesstudied here are largely revenue neutral in thatregard.

We do recognize that certain businesses arean essential component of a citys touristmatrix, contributing to the attraction of visitorsand their money. The chain businessesstudied here are quite common and unlikely to generate additional sales activityin the City. On the other hand, it is clear that the unique mix of firms inAndersonville does bring shoppers from beyond the City. The Patron Preference

LOCAL IMPACTPER $100 REVENUE


Chart 3

68

43

$0

$20

$40

$60

$80

$100

Local Chain

LocalPremium:58%


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Civic Economics 20

Survey conducted in coordination with this study revealed that the primaryattractions of Andersonville are its mix of local businesses and traditional urbansetting. The area draws spending into the city, which cannot be said of anagglomeration of common chain stores. Indeed, 10 percent of all respondentsreside outside the City of Chicago.

By Size: Chart 4 illustrates the economic impact of local and chain businessesadjusted for total square footage. For every square foot occupied by localbusinesses, the economic impact in the City of Chicago reaches $179. Bycontrast, for every square foot occupied by chains, the economic impact reachesonly $105. The Local Premium is a striking 70 percent relative to the chains.

The chain firms studied here occupy spacestwice as large as their local competitors. Theyalso achieve total sales roughly twice as high.Local and chain businesses in the study attain

comparable sales per square foot, $263 forlocals and $243 for chains. This figure willsurprise many, and it is of significance inevaluating the economic impact of chains.

Urban policy makers pay close attention to realestate occupancy and absorption rates, asimprovements in these measures reflect thehealth of the local real estate market. Nationalchains are often believed to improve thesemeasures, if only because they occupy morespace per outlet. Returning to the example ofthe typical Olive Garden, on opening day therestaurant has occupied 8,200 square feet ofspace. However, if the revenue to support thatsquare footage is merely diverted from otherbusinesses in the area, its impact onoccupancy and absorption will be negated over time.

So, where policy makers might be tempted by the aggregate impacts outlinedabove, adjustments for revenue and size dispel the notion that chains willgenerate greater sales tax revenue or more effectively utilize the citys realestate. The gradual replacement of local firms with chain competitors insteadproduces serious negative consequences, denying the community and itscitizens the benefits of the Local Premium.

LOCAL IMPACTPER SQUARE FOOT

SOURCES: Interviews with all local businesses, AnnualReports for all chain businesses, Minnesota ImplanGroup, Urban Land Institute Dollars and Cents of

Shopping Centers2004, Civic Economics.

Chart 4

179

105

$0

$50

$100

$150

$200

Local Chain

LocalPremium:70%


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Civic Economics 21

Economic Impacts by Sector

Given the variety of businesses participating in this study, Civic Economics wasgiven a unique opportunity to see how outcomes differ by the nature of thebusiness. In this case, we have sorted firms into three sectors: Restaurant,

Retail, and Services.

Local restaurants include Star Gaze, Andies, Swedish Bakery, and MHenry; competitors include Applebees, Olive Garden, Panera Bread, andDennys.

Local retailers include Women and Children First, Chicago Aquarium andPond, and White Hen; competitors include Borders, Petco, and ahypothetical company-owned convenience store.

Local service providers include Visionary Eye Care, Joel Hall Dancers,and Toujours Spa and Salon; competitors include Pearle Vision,

Cinemark, and Supercuts.

As with the analyses above, we adjusted these impact analyses to account forvariations in revenue and square footage. The aggregate Local Premium issubstantial, whether adjustment is made for revenue or size; however, thesevariables play out quite differently when the data is broken out by sector.

Chart 5 illustrates the economic impact per $100 of revenue across the threesectors.

LOCAL IMPACT PER $100 REVENUE BY SECTOR

SOURCES: Interviews with all local businesses, Annual Reports for all chain businesses, Minnesota Implan Group, UrbanLand Institute Dollars and Cents of Shopping Centers 2004, Civic Economics.

Chart 5

6876

44

76

43

60

27

40

$0

$20

$40

$60

$80

$100


Local Chain

Local Premium:

58%Local Premium:

27%

Local Premium:63%

Local Premium:90%


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Civic Economics 22

Chart 6 illustrates the economic impact per square foot across the three sectors.

Much of the difference in impact among the sectors is accounted for by laborcosts. Moreover, these costs are heavily localized, as employees andproprietors are drawn largely from within the City of Chicago.

Among restaurants, for example, labor costs ranged from 20 percent of totalrevenue to 43 percent of total revenue. Labor costs at local restaurants

averaged 28 percent, kept low by two operations in which owners providesubstantial labor while taking little in wages and profits. At chains, labor costsaveraged 34 percent, though only one operator, Dennys, exceeded the average,reporting a surprising 43 percent.

Service providers, perhaps predictably, expend a large portion of revenues onlabor. However, the data make clear that locally-owned firms expend a muchlarger portion on labor, including both employees and proprietors. Indeed,though we did not evaluate wage and benefit rates for individual employees, itappears that the presence of an owner is a significant factor in the extraordinaryLocal Premium among service firms

One last area of analysis was the impact of a locally-owned franchise incomparison to a wholly corporate-owned and operated chain store. In this casethe locally franchised White Hen Pantry mirrored a nationally owned chain storein most expenditure categories with the major difference being that bottom lineprofit for the franchisee remained in the community. This provided a LocalPremium for the locally-owned franchise, albeit much slimmer than the otherlocally-owned businesses present over their competitors.

179

303

124

100105

249

59

41

$0

$50

$100

$150

$200

$250

$300

$350


Local Chain

Local Premium:70%

Local Premium:22%

Local Premium:110%

Local Premium:144%

LOCAL IMPACT PER SQUARE FOOT BY SECTOR


Chart 6


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Civic Economics 23

POLICY IMPLICATIONS

With so much data collected for the Andersonville Study, we are certain thatinterpretation will continue long after its release. However, several significantpolicy implications should be noted here.

Creativity, Opportunity, and Prosperity

Civic Economics is dedicated tothe pursuit of those attributes inclient communities. The findingsof this study demonstrate stronglythat the Andersonville model(diverse offerings, human scale,locally-owned businesses) is farsuperior to the increasingly

common suburban model(consolidated offerings, autoscale, chain businesses) inpromoting those attributes.

In the age of the mobile creativeclass, American communitiesseek to promote and celebratetheir unique attributes. Chicagohas led the way in celebratingcultural diversity, neighborhoodvitality, and a distinctlymidwestern urbanism. These arethe very attributes on display inAndersonville and those mostdirectly threatened by theproliferation of chain businesses.

Civic Economics made noattempt in this study to evaluate wages and benefits. However, we can say withcertainty that the Andersonville model of diverse local firms provides anopportunity for entrepreneurship severely constrained by chain proliferation. Asyesterdays proprietors become tomorrows employees, there can be little doubtthat something has been lost.

The findings of this study make quite clear that local firms contribute mightily tolocal prosperity in comparison their chain competitors. The Local Premiumidentified above is a real and quantifiable demonstration of the drainage ofdollars from the community by chain businesses.

ANDERSONVILLES CLARK STREET

North

Central

South

N

SOURCE: Terraserver USA, US Geological Service


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Civic Economics 24

Neither Civic Economics nor its Andersonville clients will argue that chain firmshave no place in the city. Fair market competition plays an essential role in anyeconomy, and consumer preferences must be respected. However, policymakers must ensure that the playing field is level, that local firms are notinadvertently disadvantaged by faulty premises or unintended consequences.

Urban Redevelopment and Chain Retail

Like other major cities adjusting to new economic realities, Chicago faces themonumental challenge of redeveloping obsolete and blighted sites. The city hasachieved unparalleled success in doing so. Across the city, new andrehabilitated buildings provide appealing and accessible options in the spirit ofNew Urbanism, filling gaps in the urban fabric and in municipal revenues.Chicago has pioneered an array of planning and development tools to achievethis success, providing public support and incentives for redevelopment projects.

However, any tour of such sites will reveal a troubling fact: chain outlets anchormany redevelopment sites. As a result, these projects introduce new, oftenpublicly subsidized, competition to local businesses. As demonstrated in thisstudy, that unbalanced competition siphons dollars and economic vitality from thecommunity as consumers move spending from locals to chains.

During BookExpo 2004, held in Chicago, Civic Economics led a discussion of thisphenomenon with Americas leading independent booksellers. They reportedcommon experiences from Miami to Seattle.

Developers of these sites share an urban vision of lively, pedestrian-friendlyneighborhoods. Architectural renderings depict bookstores, restaurants, andcoffee shops with distinctive local flourishes. Municipalities offer a variety ofincentives to make the vision a reality. However, the reality often diverges insubstantial ways as developers follow conventional leasing strategies, signingchain stores and formula restaurants to the most prominent storefronts. Fromthese privileged locations, subsidized chains gain a competitive advantage overnearby independents.

We believe that cities can capture all of the advantages of redevelopment withoutinadvertently harming local merchants. Incentive conditions and developmentguidelines can promote the placement of unique local businesses in newprojects. Risk to the developer can be reduced through lease guarantees or lowinterest financing with minimal exposure to the city. Modest changes in planningand development practice will allow the continued revitalization of Chicagowithout diluting the citys unique character or foregoing the Local Premiumprovided by local firms.


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Civic Economics 25

Public Revenue and Economic Development

Policy makers rightfully seek to maximize public revenues without raising taxrates, and often proceed on the assumption that attracting local outlets ofnational chains will do that. However, the findings above demonstrate that their

arrival is, at best, revenue-neutral even in the near term. Moreover, theinevitable long-term consequence of forgoing the Local Premium identified aboveis a gradual decrease in public revenues, as those dollars are no longer availableto generate taxable transactions within the city.

Economic development policy did not focus on chain businesses until the recenteconomic downturn. Faced with a dearth of factory and headquarters prospects,practitioners found their best prospects in chain stores and restaurants and haveportrayed these as economic development wins. As it must often do, Chicagocan lead the way in repudiating this counterproductive approach to economicdevelopment.

Factories or corporate headquarters, which produce goods and services forexport, drawing dollars into the community and clearly enhancing the localeconomy and tax base, are the legitimate and traditional targets of economicdevelopment policy.

Stores, restaurants, and service providers, by contrast, produce goods andservices for local consumption. In general, the dollars that enter thesebusinesses are the dollars of Chicagoans. Therefore, the appropriate measure isnot how much revenue any outlet earns but rather how much of that revenue itshares with the community rather than siphons from it. The findings of this studymake clear that economic development goals are actually hindered when chainbusinesses receive preferential treatment.

We do recognize that certain chain stores and restaurants are an essentialcomponent of a citys tourist matrix, contributing to the attraction of visitors andtheir money. However, those firms are exceptional and in no case can the chainfirms studied here be recognized as tourist draws. In fact, as the PatronPreference Survey demonstrates, it is traditional business districts likeAndersonville that provide Chicago an edge in attracting visitors and theirspending.

Urban Design Considerations

Chicagos distinct urban character is on display on Clark Street in Andersonville.Buildings are scaled to pedestrians and present a street wall that is varied yetharmonious. These buildings provide relatively small spaces for hundreds ofretailers, restaurants, and service providers. Patrons are pulled along the streetby diverse shop windows and signage.


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Civic Economics 26

If chain competitors supplanted the local businesses of Andersonville, thatstreetscape would be dramatically and adversely affected. The chains studiedhere average twice the square footage of the locals. Shop windows, entrances,and signs would thus be stretched twice as far apart. Small structures that haveserved the neighborhood for decades would be rendered obsolete, either

abandoned or replaced by larger formulaic structures.

Perhaps more importantly, Andersonville shares these attributes with dozens ofneighborhoods throughout the city, all of which are similarly under assault. Whilegeneric agglomerations of chain stores are widely available throughout themetropolitan area, these traditional urban districts offer a distinct character thatcannot be replicated.

The Customer Preference Survey conducted by the Andersonville DevelopmentCorporation highlights this distinction. When asked to express a preference onthe type of business shoppers choose to patronize, over 70 percent chose

locally-owned businesses while less than three percent chose chain businesses.Additionally, an overwhelming 80 percent of respondents identifiedAndersonvilles traditional neighborhood district as their preferred shoppingenvironment.

These results back up the belief in the neighborhood that Andersonvilles uniquebusinesses and layout are a draw, attracting people from both inside and outsidethe region. Indeed, among survey respondents, over 10% were from outside theCity of Chicago. Districts such as Andersonville provide the City with a uniqueadvantage, drawing patrons from throughout the region and offering tourists anexperience they are unlikely to find at home.

The Economic Impact of Consumer Choices

The Andersonville Study was crafted to provide policy makers with theinformation they need for rational decision-making. However, we would beremiss if we failed to address another critical audience with the power to make asubstantial difference in the economic health of Chicago: consumers.

From a bottle of soda to a night on the town, from books and fish to eye care anddance lessons, the businesses studied here offer a range of goods and servicesthat ordinary Chicagoans purchase every day. With each purchase, consumersput into play their hard earned dollars; the consumers decision to patronize alocal firm versus a chain competitor ripples through the economy with dramaticresults.

The ten local firms participating in this study generate nearly $10 Million inrevenue each year. Of that sum, roughly $6.8 million remains in Chicago. Wereconsumers to abandon these firms and direct that $10 million in spending to theirchain competitors, only $4.3 million would remain. The missing millions wouldhave flown off to corporate offices outside the region. Once siphoned away, that


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Civic Economics 27

money cannot go to employ Chicagoans, to improve Chicago homes, or tosupport Chicago churches and charities.

In one of the largest urban economies in the nation, these few million dollars mayseem insignificant. Yet it must be remembered that we have studied here only

ten small businesses in one Chicago neighborhood. The $10 Million in revenuewe followed here is but a drop in the citys total sales of goods and services,which is measured in the tens of billions.

While we cannot make claims about the applicability of these exact figuresbeyond the businesses studied here, it is clear that the purchasing decisions ofChicago consumers determine the fate of billions of dollars. Whether that moneystays or goes is dependent upon the individual shopping choices of individualconsumers.

The Bottom Line

Andersonville is a model for prosperous communities nationwide. There,Chicagoans offer a wide array of products and services, keep local dollars in thelocal economy, and contribute to Chicagos privileged place among Americancities. But Andersonville and the dozens of neighborhoods like it are particularlythreatened by the proliferation of chain businesses.

Public policy in Chicago must seek to protect and promote the Andersonvillemodel rather than facilitate its demise. Indeed, it may be in the best interests ofcommunities to institute policies that directly incentivize them.


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Civic Economics 28

ABOUT THE STUDY

About Andersonville

Andersonville is a distinctive neighborhood on the north side of

Chicago. Locally-owned businesses have been a primaryelement in its success throughout its history. First established asa farming community in the 1850s, the retail district began as anenclave of small businesses when Swedes moved north toescape the neighborhoods that had been ravaged by the GreatChicago Fire in 1871. The residential community remainedprimarily Swedish for decades, until, like many establishedgroups, the Swedes began migrating to the suburbs in the 1950s.

In 1964, the small business owners banded together to organize a huge parade,led by Mayor Richard J. Daley, in a celebration to rededicate the neighborhood to

its Swedish roots. In the mid-1980s, the neighborhood was experiencingdisinvestment in the commercial district. The business owners again organized,with the help of locally-owned banks, and provided financing for new start-ups torevitalize the district, as well as community-wide marketing. The combinedefforts drew key new local enterprises onto Clark Street, and with them camerenewed interest in Andersonvilles residential areas.

Today, Andersonville is one of Chicagos most popular neighborhoods. It is stillconsidered one of the most concentrated areas of Swedish culture in the UnitedStates and is home to the renowned Swedish American Museum. In addition,Andersonville hosts a diverse assortment of devoted residents and businesses,including one of Chicagos largest gay & lesbian communities, a large collectionof Middle Eastern restaurants and bakeries, and a thriving Hispanic commercialarea on its north end.

Discover the small-town charm of Chicagos Andersonville neighborhood. Agreat place to start is the website of the Andersonville Chamber of Commerce,www.Andersonville.org.


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Civic Economics 29

About Civic Economics

Civic Economics is an economic analysis and strategicplanning consultancy with offices in Austin andChicago. Since its founding in 2002, the firm has

established itself as a leader in progressive economicdevelopment, taking its unique vision of sustainableprosperity across the USA and Mexico.

More importantly, the firm has emerged at the center of a network of plannersand independent businesses promoting reasoned analysis of the evolvingAmerican retail scene. Weve provided information and counsel to dozens ofcivic organizations in the USA and Canada. Our observations have appeared innews outlets from New York Times to San Diego. We have developed anunmatched understanding of the dynamics of local retail and service provision, alibrary of best practices information, and a network of contacts from business,

government, and civic organizations nationwide.

Learn more about the firm and The Civic Economics of Retail by visiting usonline at www.CivicEconomics.com.


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Civic Economics 30

Participating Firms

Andies Restaurant is a family owned restaurant servingMediterranean, Lebanese, and Greek foods. Owner Andie Tamrashas been serving Andersonville residents and visitors for 30 years.

He participates in many local fundraisers and enjoys being acommunity destination for many holiday meals.

The Chicago Aquarium and Pond Company meets all the needsof the pond and aquarium hobbyist. It was started back in 1981 andowners Harold Ellis and Ken Riley have lived above their shopsince 1988. As such, they are invested in Andersonville in boththeir professional and personal spheres.

The Joel Hall Dancers and Center was founded in 1974 by JoelHall and Joseph Ehrenberg. Offering over 150 weekly classes for

dancers of all ages, the studio reaches out to those who would nototherwise be exposed to the arts for classes, educational outreachprograms and performances.

M Henry is a recent addition to the Andersonville scene. Thisrestaurant features a breakfast and brunch menu that puts amodern spin on some classic dishes. Owner Michael Moormanchose a location at the northern end of the neighborhood,expanding the geographic diversity in Andersonville.

Star Gaze is a restaurant and bar catering primarily to theneighborhoods lesbian population. The community minded ownersdonate time and space to many nonprofit organizations that cannotafford those expenses.

Swedish Bakery is the ultimate neighborhood sweet shop.Traditional Swedish products are featured, as well as a selection ofother European and old fashioned American items. An expansionin 1989 tripled the size of the Swedish Bakery, raising employmentfrom 19 to its current 55 employees.

Toujours Spa and Salon is another recent addition toAndersonville. This upscale salon and spa provides a service morecommonly found downtown. The quality of work provides residentsof Andersonville an amenity they once had to travel outside theneighborhood to enjoy.


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Visionary Eye Care is a full service eye care facility, providing aunique health service and a full range of stylish eyewear. Drs.Michael Ciszek and Barbara Butler-Schneider and all theiremployees live in Andersonville.

White Hen Pantry is the locally-owned outlet of a well-knownconvenience store franchisor. Owner Cecilia Lemus was anemployee at the store before recently purchasing the franchiserights.

Women and Children First is one of the largest feministbookstores in the country, with over 30,000 books, and plays hostto many book signings and events from local, regional, and nationalfigures. Co-owner Ann Christopherson has been a vocal proponentof independent bookstores and retailers throughout the country and

has recently served as President of the American Booksellers Association.


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Contact Information

To learn more about the Andersonville Study of Retail Economics, please contactthe sponsors and authors:

Ellen Shepard, Executive DirectorAndersonville Chamber of

Commerce1478 West Catalpa AvenueChicago, Illinois [email protected]

Andersonville DevelopmentCorporation1478 West Catalpa AvenueChicago, Illinois 60640

Matt Cunningham, PartnerCivic Economics

1425 West Summerdale, #3AChicago, Illinois [email protected]

Dan Houston, PartnerCivic EconomicsPost Office Box 49061Austin, Texas 78765512.853.9044dhouston@civiceconomics.comwww.CivicEconomics.com

To learn more about the Andersonville and to obtain copies of study documents,please visit www.AndersonvilleStudy.com.

andersonville study

Documents